Mt. Gox sued in US over bitcoin losses

In a complaint filed on Thursday plaintiff Gregory Greene said Mt. Gox and its chief executive, Mark Karpeles (pictured), were negligent and committed fraud for having failed to protect the exchange from theft.
Photo: Bloomberg

by
Jonathan Stempel | Emily Flitter

Mt. Gox, once the world’s largest bitcoin exchange, has been sued by a customer in what may be the first of many US lawsuits seeking to recoup millions of dollars of losses linked to a hacking attack that led to the exchange’s bankruptcy.

In a complaint filed on Thursday in US District Court in Chicago, plaintiff Gregory Greene said Mt. Gox and its chief executive, Mark Karpeles, were negligent and committed fraud for having failed to protect the Tokyo-based exchange from theft.

Mr Greene said bitcoin prices plummeted after Mt. Gox found the security breach, but said he and other investors in the virtual currency could not cut their losses because the exchange had halted trading. Mt. Gox took down its website on Tuesday.

“Mt. Gox intentionally and knowingly failed to provide its users with the level of security protection for which they paid," said Mr Greene, who estimated his bitcoin stake at $US25,000 ($28,000).

It was not immediately clear which law firm would defend Mt. Gox against the lawsuit. Baker & McKenzie, a Chicago-based firm that represents the exchange in Japan, did not immediately respond on Friday to requests for comment.

At a news conference on Friday at the Tokyo District Court, Mr Karpeles said he was “very sorry" and blamed Mt. Gox’s collapse on a “weakness in our system", but predicted that the bitcoin market would continue to grow.

Mt. Gox said it may have 750,000 of its customers’ bitcoins and 100,000 of its own, equal to about 7 per cent of bitcoins worldwide, for a total loss of about $US480 million.

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It is common for alleged frauds that generate significant losses or attention to result in a slew of US lawsuits seeking class action status, even if the alleged wrongful activity occurs outside the country.

“This is a case of serial mismanagement, if not outright fraud, by Karpeles and Mt. Gox," said Steven Woodrow, a partner at the Edelson law firm in Denver, who filed Mr Greene’s lawsuit. “Users of the exchange are collectively out millions while Mt. Gox holds onto their bitcoins. We intend to get to the bottom of this in an American court."